A Critical Response To Jim Roger’s Perspective On The Decline Of The Dollar That The “FED” Has Given Up

Jim Rogers at his desk as an off shore American investment guru is indeed most certainly correct, but not comprehensive in what he says. While there are other factors Jim omits, what he maintains is absolutely true. The Federal Reserve System is an unconstitutional fourth branch of government with no real democratic accountability. A per se Central Bank, at least one along the lines the FED organized, is philosophically anti American in concept and alien to the principles of both good government and good economics.

Banks should be forced to go to their shareholders for cash and not the FED or tax payers. The management responsible for the subprime mess should be held accountable by shareholders, and not be given bonuses for plunging the banking system into a quagmire. Bear Sterns, as one example, has been a bad company since their tax straddle mess if the seventies. In all of this Jim is totally right.

However the dollar decline and FED policies are orchestrated by other factors in addition to those cited by Jim Rogers, even though his stated assertions are true:

1. Budget Deficit - Not all budgetary account deficit is monetized (inflationary Central Bank borrowing). Much is financed by US Treasury debentures, T bills etc., the lions share purchased by Asian interests led by China and Arab oil interests.
The low dollar facilitates repayment of dollar denominated debt to China and the Arabs etc. in effectively devalued dollars.

2. The Chinese undervalued the Yuan, hence a low dollar curbs Chinese growth as an economic rival impeding its continued capacity to emerge as a political and strategic rival. It is causing pressure on the Chinese whose under-valued Yuan artificially subsidized Chinese exports. China has suffered a 15% loss of manufacturing based jobs and a 30% decline in its share index, and its banking system I have been warning for years is a 'house of cards'. Likewise, the Saudis hold 6% of the Dow with the Emirates such as Abu Dhabi having Sovereign Wealth Funds deeply entrenched in American capital markets. The USA is counter attacking China and the Arab oil states using the FED instead of the Pentagon (The Soviets were brought down by economic crises, not by military might alone).

Saudi oil wind falls are being in revalued downward through declining dollar valued investment when contrasted to other currencies. The Saudis have too much tied up in the US economy to easily dump the petro dollar as the standard currency for light Arabian crude. Admittedly however, in the longer term, in the process of hurting the Chinese and Saudis, America is hurting itself.    

3. Internal effects of a weakened dollar in the short term are not noticeable to the average American consumer (apart from oil) and American exports meanwhile increase, assisting the declining manufacturing sector. With the disaster of the balance of trade and hyper deficitism accentuated by the outlandish pseudo conservative hyper trade & budget policies of a Ronald Reagan and his half senile "Reaganomics" (even denounced by his own Budget Director David Stockman, his chief economist Murray Wiedenbaum, and called 'voodoo' by George Bush Sr. his Vice President), correction has been long coming. Yet Clinton failed to address the trade imbalances. An improvement in trade imbalance will not be significantly achieved by GATT or NAFTA reform. A low dollar however can work wonders. 

4. Any correction of this dollar crisis by the FED and Treasury Department cannot take place for electoral reasons until after the General Elections, (if then). Action is being postponed but that does not necessarily equate to it being ignored. We are now haunted by the specter of the Nixon/ Ford era stagflation. If prime rates go up in a Paul Volcker strategy, the recessionary impact will be obvious; but that doesn't happen in election years. Politicians are stupid but not that stupid; daft in economics but not in politics. 

5. Additionally, FED policies are not the only root cause by any means. While I do not approve of illegal immigration, the only way American labor intensive industries can remain competitive in an increasingly globalized economic environment is using illegal immigrant labor. American consumers prefer less expensive foreign manufactured consumer durables to more expensive domestically produced ones. This also significantly helps fuel the dollar's decline.

6. I was no admirer of Alan Greenspan, who is a Republican. Greenspan admitted however that a Republican Congress in the first Bush administration with a Republican President mis-spent recklessly, and that is continuing. Pseudo conservative Republicans like Bush and Reagan have quintupled the national deficit creating pressure for  central bank and foreign borrowing.

7. While Republican presidents like Reagan and Bush by any standard have in terms of fiscal responsibility been the scum of the scum (even a New Deal Democrat or LBJ style 'Guns & Butter' Democrat could not fathom deficits like those of Reagan and Bush), the Democrats have fared no better. The 'Community Investment Act' of the Carter Administration, greatly expanded by Clinton, is the primary cause of the sub prime crises triggering the current fiasco thus pressuring the FED to bail out more banks.

8. Jim Rogers does not address the globalization factors. The devalued dollar is in part designed to bring the US & Canadian dollars into an ERM (exchange rate mechanism) as a basis for an eventual de facto NAFTA Amero-dollar, also creating an incentive for Australia & New Zealand to bring their dollars into the system. It would not necessarily be a circulated currency but could function the way the ICU (international currency unit) did at the World Bank, The IMF, and Geneva Bank of International Settlements. The FED must go broke as an international replacement for NAFTA uniting all the dollars (US, Canada, Australia, New Zealand) is required to prevent the European Central Bank and euro from becoming the base world reserve currency. At the same time however, FED policy helps create incentive to dodge the dollar for the euro.   

Like it or not (and I don't like it) NAFTA is the only way America can remain the dominant economic power in the face of the expanding EU and a rising Asia. This demands a fundamental structural re-ordering of the existing central banking and currency systems.

In short, Jim Rogers is a good guy, a good commodities and futures trading manager, with good economic sense who speaks much truth. But there is more truth he simply fails to address. I like Jim Rogers as a tactical economist, but he is not as good as a strategic economist which has as much to do with politics as it does economics.
Yes, Jim is right -  Bernanke is hideous,  but there is more to it than Bernanke and Greenspan. Bush is an incompetent who like his father is nothing more than a stooge for international oil interests who are in bed with the Saudis who hate The West. Clinton is no better. It is not just the unelected FED, it is the elected branches of government causing this decline of the dollar.

Moreover, Grain and Silage industeries and the agricultural sector, energy interests, certain hedge funds, and mega investment banks like Goldman Sachs will all do rather well. For the average guy however, Jim's advice is solid.

None-the-less, as much as I like him and appreciate and agree with what he says, there are simply too many other factors in the weakening of the dollar in this rather complex equation that Jim Rogers simply ignores.

He is right in what he says - Wrong in what he fails to say.

Jacob Prasch